3rd banking force desperately needed to compete with AIB & BOI after Ulster

THE announcement that Ulster Bank will begin a phased withdrawal from the Irish market is a hammer blow to the economy.

Not only are nearly 3,000 jobs being lost in our cities and towns, but crucially competition in the banking sector will all but disappear.

3

3

With the expected sale of Ulster Bank’s mortgage loan book to PTSB, and its corporate loan book to AIB, Ireland is now set to be a two and two-bit banking system.

When these sales are completed, we’ll be left with Bank of Ireland and AIB as the dominant players with Permanent TSB and KBC Bank playing minor, side roles.

Even before this expected announcement, the Irish lending market was structurally weak. In November 2020, the average Irish mortgage interest rate was 2.79 per cent compared to 1.3 per cent across the rest of the Eurozone.

Irish mortgage holders and SMEs have been paying through the nose for years.

Now with the loss of Ulster Bank from the Irish market, consumers, be they families or businesses, will have even less choice and will more than likely end up paying even more than their European counterparts do.

In an open and dynamic economy like ours, strong and healthy competition in our banking sector is essential in innovating the industry and ultimately lowering the costs for consumers.

The upshot of excessive banking costs is less money in the pockets of families and less capital for businesses to invest with. Our competitiveness as an economy is at risk.

ON Friday, Ulster Bank announced a phased withdrawal from Ireland, saying it will be managed in an “orderly and considered manner”.

The bank, owned by the UK’s NatWest, has 1.1million customers in Ireland, along with 2,800 staff in 88 branches across the country.

Taoiseach Micheal Martin said the move was “not good news for Ireland”, while Finance Minister Paschal Donohoe called it a “sad day” for Irish banking.

The bank has promised no immediate change for customers, with full banking services to continue across all channels.

ULSTER BANK’S DEPARTURE WILL HIT FAMILIES

Writing in the Irish Sun on Sunday today, BILLY KELLEHER, a Fianna Fáil MEP for Ireland South and a member of the European Parliament’s Economic and Monetary Affairs Committee, says a third banking force is now desperately needed to compete with AIB and Bank of Ireland.

What is now needed is an honest appraisal by Government and the Central Bank on the state of the Irish banking sector.

Is it really acceptable that a country our size has only two large banks?

How can we support businesses and entrepreneurs when there is no hunger in the sector to go out and win new businesses by offering competitive rates?

A third banking force is desperately needed to compete with AIB and Bank of Ireland.

While the most obvious solution would be for a bank from outside the State to set up shop in Ireland, there are many obstacles to overcome.

First, Ireland has some of the strictest repossession and insolvency laws in the EU.

This scares off many ­European banks who are used to a more liberal regime of securing assets in the event of a failure to pay.

Secondly, there are still many hangover issues from the 2008-banking crisis — such as Irish banks having to hold higher levels of capital. As a result, it is likely that it will be up to the Irish State to do the heavy lifting in terms of creating a third banking force here.

However, it would not be the first time the Irish State had got actively involved in adding competition into the banking sector.

Nearly 100 years ago in 1927, the Government established ACC bank to support investment in the agricultural sector.

Then in 1933, the Minister for Industry and Commerce at the time, Seán Lemass, established the ICC to do likewise for Irish industry.

Given the current state of our public finances due to the Covid-19 pandemic, setting up banks would be a…